hahahah OK Todd seriously? Have you NOT been paying attention these past few years?
You want links? http://en.wikipedia.org/wiki/High-yield_debt
At the link:
Debt repackaging and subprime crisisHigh-yield bonds can also be repackaged into collateralized debt obligations (CDO), thereby raising the credit rating of the senior tranches above the rating of the original debt. The senior tranches of high-yield CDOs can thus meet the minimum credit rating requirements of pension funds and other institutional investors despite the significant risk in the original high-yield debt.
The New York City headquarters of Barclays. In background, the AXA Center, headquarters of AXA, first worldwide insurance company.When such CDOs are backed by assets of dubious value, such as subprime mortgage loans, and lose market liquidity, the bonds and their derivatives are also referred to as toxic debt. Holding such "toxic" assets has led to the demise of several investment banks such as Lehman Brothers and other financial institutions during the subprime mortgage crisis of 2007-09 and led the US Treasury to seek congressional appropriations to buy those assets in September 2008 to prevent a systemic crisis of the banks.
And that is just ONE of the shenanigans that went on as far as allowing banks to lend on fudged assets.
You're changing the subject. We were talking about Fractional Reserve Banking.
That's when a bank accepts deposits, say $100, and loans out some and reserves the rest.
If the reserve requirement is 10%, they can loan $90 of the $100 deposit and reserve the rest, $10.
I don't know where your claim, "Corporate bonds are valued at 1000 per while Municpals are valued at 5000 per and Federal are valued at 10,000 per" came from, but I've never seen anything like that. If you have a site you took that from, please provide it.
By the way, if a bank securitizes and sells a loan, it doesn't have to hold a reserve against it, so it has nothing to do with FRB.